Thesis Research
2008 Theses
Following are a selection of theses abstracts by members of the Class of 2008. Join MITREX (The MIT Real Estate Exchange) to download complete theses. For non MITREX members, theses can be purchased from the MIT Libraries.
Real Estate Investment in Cuba: Is Now the Right Time?
Damien B. Chaviano
Abstract
Feasibility Study of Korea Biocluster With Real Estate Perspectives
Junghun Choi
Abstract
Forecasting Office Capitalization Rates and Risk Premia in Emerging Markets
Vipasha Dasgupta
Alexander Ward Nathaniel Knapp
Abstract
Achieving Sustainable Development on the Croatian Waterfront . . .Challenges and Opportunities
Bozho Deranja
Abstract
Global Warming, Energy Efficiency and the Role of the Built Environment
Donna K. DiBona
Abstract
Greening Existing Buildings with LEED-EB!
Tyson H. Dirksen and Mark D. McGowan
Abstract
Risk Management with Residential Real Estate Derivatives: Strategies for Home Builders
Quinn W. Eddins
Abstract
Show Me The Money: A Study of Real Estate Development Returns
Matthew S. Flowers
Abstract
A Real Options Analysis of a Vertically Expandable Real Estate Development
Anthony C. Guma
Abstract
The Paths and Characteristics of Real Estate Entrepreneurs
Michael Kazmierski
Abstract
Real Options: A Way To Deal With Market Uncertainty In Real Estate Development Projects
Kyungwon Kim
Abstract
Retail Sales Forecast: A Cross Sectional Approach for Retail Investment Strategy
Ai Kong
Abstract
Structuring Public REIT-sponsored Private Capital Fund: The Case of US Industrial and Retail REITs
Cervantes Lee
Abstract
New Songdo City and the Value of Flexibility: A Case Study of Implementation and Analysis of a Mega-Scale Project
Junho Lee
Jeehyun Oh
Abstract
SECOND HOME REAL ESTATE MARKET: ECONOMIC ANALYSIS OF RESIDENTIAL PRICING BEHAVIOR NEAR HEAVENLY SKI RESORT, CA
Sean Lee
Abstract
REAL ESTATE PRIVATE EQUITY: MARKET IMPACTS ON INVESTMENT STRATEGIES AND COMPOSITIONS OF OPPORTUNITY FUNDS
Alex Lin
Abstract
Examining Price Appreciation in Foreclosed Properties
Eric Loth Jr.
Abstract
Is China Ready For REITs? -- An examination of challenges and opportunities
Tianjin Luo
Abstract
Bringing Good Things to Life: New Markets Tax Credits and the Opening of Low-income Communities to Investment, Including a Case Study of Pittsfield, Massachusetts
Daniel J. McGrath
Abstract
Office Leases & Landlord Investment in Energy Efficiency
Brian S. Meyer, Jr.
Abstract
Stimulating Nigeria’s Emerging Real Estate Markets: Investment Opportunities Through the Public Sector
Oladimeji Odusote
Abstract
Strategic Framework for Real Estate Investment in an Emerging Market: The Case of Commercial Real Estate in Bogotá, Colombia.
José Camilo Otálora Castro
Abstract
A Comparison of Downtown and Suburban Office Markets
Nikhil A. Patel
Abstract
Real Options in Action: Vertical Phasing in Commercial Real Estate Development
Jason R. Pearson
Kate S. Wittels
Abstract
York’s Wild Kingdom: A Development Proposal
Kimberley Whiting Rae
Abstract
Stadium Development and Urban Renewal: A Look at Washington, DC
James W. Rizzo
Abstract
Price Discovery in Commercial Mortgage Backed Securities: What Factors Determine Pricing at Origination and After Origination in the CMBS Market?
Emily Schwartz
Matthew Warner
Abstract
Knowledge-based Cluster Development in India Opportunities and Challenges
Chandan Dev Singla
Abstract
Greening Stadiums: Study of Environmentally Responsible Methods of Building and Retro-fitting Stadiums
Peter L. Vanderweil
Abstract
A Simplified Constant-Liquidity Price Index for U.S. Commercial Property Based on the RCA Database
Yali Wang
Abstract
Emerald Cities: The Emergence of Mega Developments in the 21st Century
Steven P. Weikal
Abstract
Real Estate Investment in Cuba: Is Now the Right Time?
Damien B. Chaviano
Advisor: Gloria Schuck, Lecturer
On the eve of the fifty‐year anniversary of the Cuban Revolution, change finally appears to be
on the horizon for Cuba. In February 2008, Raul Castro succeeded his older brother Fidel as
President of the Republic of Cuba. In the United States, a newly elected President and a
Congress presumably controlled by the Democratic Party will assume power in 2009. These
political developments bring with them the potential for change in U.S. ‐ Cuba relations.
Opportunities are available even today for U.S. investment in the Cuban real estate market.
This thesis identifies why now is the right time for Americans to move forward with their
investment plans. It explains how real estate transactions are currently being conducted on the
island and the challenges of investing in Cuban real estate according to Cubans and foreign
investors. Presented as well are strategies for overcoming these hurdles.
Feasibility Study of Korea Biocluster With Real Estate Perspectives
Junghun Choi
Advisor: Brian A. Ciochetti, Professor of the Practice of Real Estate
Globalization has created a dynamic and rapidly changing marketplace. A business must
move quickly to capitalize on the changing environment. For example, many global
biotechnology firms are seeking new geographical locations as part of their strategy to
expand their business.
Korea’s biotechnology reputation and prospects as a potential site for biotech businesses
is attracting increase attention. The Yeongjong Project is one choice. For the ongoing
development of Korean bioclusters, this study will demonstrate potential and the
attractiveness of Korea’s biocluster sites, which may help international biotechnology
firms relocate and reposition in Korea.
Biotechnology is an umbrella term so this study identifies what the biotechnology and
biotechnology industry are, as well as its characteristics and risks.
Secondly, the biotechnology market will be analyzed both globally and domestically to
understand the industry trend. This paper compares successful international bioclusters
such as Tuas Medical Park in Singapore and University Park at MIT in the U.S, along
with Korea’s Wonju Medical Valley and Daedeok Techno Valley. This study explains
different innovations and success factors, and characteristics of each cluster and whether
the success factors are applicable to the Yeongjong Project.
Finally, this thesis will identify the area and its characteristics suitable for a biocluster
and propose appropriate product types through market feasibility.
Forecasting Office Capitalization Rates and Risk Premia in Emerging Markets
Vipasha Dasgupta and Alexander Ward Nathaniel Knapp
Advisor: William Wheaton, Professor of Economics
As international property investors increasingly understand and appreciate the benefits of
diversification and look to achieve higher returns, cross-border real estate investment has increased.
In this context, the issue of the country risk premium is crucial as these types of investments present
a wide range of risk and return opportunities that need to be understood and, ideally, quantified.
Naturally, the decision of whether or not to invest begins with an assessment of how much
additional return is required to compensate for the additional risk associated with a particular country.
Establishing these risk premiums is particularly difficult since cross-border investors often lack local
market knowledge and encounter transparency issues when trying to gain an understanding of the
market. These questions matter particularly to institutional investors looking to make allocation
decisions across geographically diversified holdings.
Given the problem of appropriate pricing in emerging markets, this study will attempt to forecast
capitalization rates for these markets using widely available macroeconomic data and property-related
market ratings. This cross-sectional study will employ univariate and multivariate regressions. We will
initially identify various factors with a significant relationship to cap rates in markets where real estate
pricing data is available. Office cap rate data from Real Capital Analytics (RCA), Jones Lang LaSalle-
LaSalle Investment Management and Investment Property Databank (IPD) for sets of 23 to 25
overlapping countries will be used as dependent variables in the analysis.
Once the significant factors have been established, we will extrapolate the model out to markets that
have the necessary background data, but lack usable cap rate information. In other words, we will
forecast cap rates for countries that lack data – as is typical for emerging markets. Using this forecast,
we can then estimate a “risk factor” by subtracting an appropriate risk-free rate and by adding a
income growth proxy - the country’s GDP growth.
This study hopes to reveal key factors that will help institutional investors looking to invest in
countries other than their own. It will attempt to provide a basic guideline of cap rates and riskfactors
for office properties in emerging markets. Understanding the drivers behind pricing
differences can help us better predict how cap rates would change with underlying changes in local
macroeconomic, political, and property market factors.
Achieving Sustainable Development on the Croatian Waterfront . . .Challenges and Opportunities
Bozho Deranja
Advisor: Dennis Frenchman, Leventhal Professor of Urban Design and Planning
Croatia stands true to its marketing slogan, “the Mediterranean as it once was”, with tiny tiled-roof villages dotting
the unspoiled coastline-- but for how long? Since it declared independence from Yugoslavia in 1991, Croatia has
been on the rise attracting tourists to its Adriatic coastline and over 1000 islands, reaching its prewar tourism
numbers when it led the market as the top destination for European vacationers. Investors, speculators and
developers have all followed suit, attempting to take advantage of the beautiful coastline and growing market.
However, developers have had minimal success navigating through the overly restrictive planning and permitting
bureaucracy. In the meanwhile, two to four story apartment hotels have sprung up like wild fire (legally and
illegally) and are dominating the coastal accommodations and threatening the natural landscape.
As most of the Mediterranean coastlines are 70% developed, Croatia maintains only 15% of its coast developed;
creating a strong comparative advantage that must be preserved and strategically utilized. The current system does
not have a vision of how to accomplish this.
An analysis of the sustainability of the coastal development process in Croatia was conducted beginning with an
intense review of available literature, followed by a series of personal interviews with key figures in the market.
The seven coastal counties of Croatia were visited during the interview process where developers, architects, city
and state officials, business consultants, lawyers, academics and investors shared their knowledge about the
opportunities and challenges of this exciting market.
Economic drivers, land use policy, design, financing, infrastructure capacity and operations were all reviewed as key
elements of the development process. An analysis of these elements produced a final recommendation establishing
a vision for the Croatian coast and an Adriatic Coastal Planning Policy to carry out that vision for generations to
come.
Global Warming, Energy Efficiency and the Role of the Built Environment
Donna K. DiBona
Advisor: Brian A. Ciochetti, PhD, Professor of the Practice of Real Estate
This thesis attempts to explore the relationships between the Buildings Sector, energy efficiency and global warming. Through a qualitative analysis the author illustrates the connection between these three areas and shows how both energy efficiency, as a key policy measure, and the Buildings Sector, as the key recipient of such policies, can act together to significantly mitigate the effects of global warming and resulting climate change.
First, the reader is given the tools to understand the issues surrounding global warming and climate change. This is accomplished through an overview of related science, history and environmental and economic impacts. Future climate scenarios are explained and mitigation options are offered. Second, an overview of energy efficiency as the primary mitigation option for global warming is given. Terminology, history and mitigation potential of energy efficiency and how it applies across market sectors are reviewed. Barriers to implementation of energy-efficiency projects and the need for strong policy are also explored. Third, the Buildings Sector, showing the most promise for greenhouse gas mitigation through energy-efficiency investments, is analyzed. This analysis focuses on the current consumption patterns of buildings, on available energy-efficient technologies, and on the characteristics of efficiency projects in buildings and how they support the goals of broader climate change policy. The analysis concludes with a review of the barriers to such projects along with an overview of the policies in place meant to overcome these barriers. Finally, the author summarizes her research and offers her conclusions.
Greening Existing Buildings with LEED-EB!
Tyson H. Dirksen and Mark D. McGowan
Advisor: Brian A. Ciochetti, PhD, Professor of the Practice of Real Estate
The market of existing office buildings is going green. While early adopters of green buildings
were owner-occupiers, there is a current wave of nonowner-occupied office buildings seeking
Leadership in Energy and Environmental Design (LEED) for Existing Buildings certification.
This thesis examines the current context in which this dramatic change is transpiring as well as
answers the following questions as they relate to this green transformation of existing multitenanted
office buildings:
• Who is participating?
• Why are they participating?
• What is the process?
• What are the costs?
• How is it being financed?
Research conducted included literature review and interviews with building owners, property
managers, building engineers and brokers in several major metropolitan office markets in the
United States.
This thesis examines green building rating systems from around the world. We focus on the
LEED rating system, the most widely used in the United States, as it provides a good framework
for owners and managers to evaluate and benchmark the environmental performance of their
building.
Our research indicates that a much higher percentage of Class A office building owners and
managers are pursuing LEED for Existing Building (LEED-EB) certification, while Class B
owners and managers are not. Class B owners face less incentives and greater obstacles when
pursuing LEED-EB certification. In chapter four of this thesis, we explore two creative ways that
Class B owners and managers may be able to overcome some of these hurdles – Energy Savings
Performance Contracts (ESPCs) and Power Purchase Agreements (PPA).
Risk Management with Residential Real Estate Derivatives: Strategies for Home Builders
Quinn W. Eddins
Advisor: David M. Geltner, Professor of Real Estate Finance, Department of Urban Studies and Planning
This paper examines why and how publicly-traded home builders might use index-based residential property derivatives to manage risk. After describing a number of alternative reasons for hedging, I argue for a paradigm for risk management proposed by Kenneth Froot, David Scharfstein and Jeremy Stein and augmented by Antonio Mello and John Parsons. According to this paradigm, the objective of hedging is to increase a firm’s financial flexibility by maximizing its liquidity – slack in the form of cash or unused debt capacity – when falling output prices reduce income and make it difficult to raise external financing, but do not reduce the firm’s need for funds. An important implication of this paradigm is that attempting to eliminate volatility in the value of a firm is not an optimal hedging objective, and attempting to do so can, in fact, reduce the value of the firm. To illustrate how this paradigm might be used by public home builders it is applied to two hypothetical firms, each with a different capital structure and regional focus, and the potential benefits of hedging for each firm is discussed.
The discussion then turns to the available real estate derivative products and how they can be employed as hedging vehicles. Key issues pertaining to the design of hedging vehicles are examined, including 1) how to choose a derivative contract, 2) how to choose an index or indices to use as the asset underlying the hedging vehicle and 3) how to address misalignment between the time to expiration of available derivatives contracts and the development time frames of residential communities. Evidence is presented that suggests hedging vehicles based on multi-market composite indices will probably have too much basis risk to effectively hedge against downturns in the prices of some builders’ homes. Finally, I describe a methodology for determining whether and how much a firm should hedge.
Show Me The Money: A Study of Real Estate Development Returns
Matthew S. Flowers
Advisor: David M. Geltner, Professor of Real Estate Finance
This paper introduces three new tools for the analysis and replication of real estate
development returns. In particular, this paper discusses advanced sensitivity analysis, real estate
development return indexes and synthetic real estate development investments. The advanced
sensitivity analysis allows us to produce subjective ex ante return distributions. This analysis will
allow developers and investors to “see” the shape of their investments return distribution. The
benefits of knowing the shape of the subjective ex ante return distributions is that it may help
developers and investors make better decisions and negotiate specific terms with each
contributor in the capital structure. The ex post analysis allows us to produce development
return indexes useful in the benchmarking of real estate development performance and in the
creation of synthetic development investments by way of the new real estate derivatives. The
development return indexes are created by transforming MIT’s Transaction Based Index (TBI),
which tracks stabilized property returns, into development return indexes through the use of a
stylized mathematical model.
A Real Options Analysis of a Vertically Expandable Real Estate Development
Anthony C. Guma
Advisor: Richard de Neufville, Professor of Engineering Systems and of Civil and Environmental Engineering
Like many great business ventures, grand successes in real estate development are often
attributed to individuals with strong visions and talent, as well as a keen foresight on the
future conditions which will ultimately decide the value of their projects. Even with the best
forecasts and predictions, this type of a clear view of the future real estate market is typically
difficult to bring into focus. By considering developments which provide the ability to react
accordingly to the uncertainty of future forces, developers can better manage the risk
associated with a potential weak market while also gaining the potential to benefit in a strong
one. Flexibility of this type in real estate is generally known as a “real option.”
Even in dense urban centers with a limited amount of developable land, market uncertainty
may still exist. Therefore, flexibility in that type of environment could allow a developer to
be better positioned should a market improve or decline. One way to provide this type of
flexibility on urban sites is to develop a given quantity of space initially with the option to
add more vertically in the future. Although rare, such vertical expansions are quite feasible
and the real option is quantifiable.
This thesis investigates the value of providing a real option to vertically expand a structure in
the future. Real option valuation is often regarded as a complex procedure and outside of
typical real estate finance. This investigation will adopt a previously developed methodology
based on familiar spreadsheet techniques and common valuation metrics such as net present
value.
To explore the use of this methodology and the potential value of vertical expansion, the
Health Care Service Corporation headquarters in Chicago, IL is the basis of an analysis. This
structure represents an existing building with the built-in option to expand vertically to
almost twice its initial height.
The Paths and Characteristics of Real Estate Entrepreneurs
Michael Kazmierski
Advisor: John F. Kennedy, Lecturer
What paths have real estate entrepreneurs taken to establish their own firm? Also, what
characteristics did they develop and utilize in the process? This thesis gives the unique
opportunity to better understand the life of the real estate entrepreneur. Also, this thesis
shall add clarity to these questions by providing case studies and analyses through
reviewing such topics by obtaining information from face-to-face interviews of leaders
and legends in the real estate industry.
Included is a study on the general characteristics that are utilized by entrepreneurs and
their importance. Also, studies on the application of these characteristics and their
statistical significance are discussed. These characteristics have been reviewed to create
a better understanding of the composition of the entrepreneur and how the application of
these factors will help in entrepreneurial achievement. This framework will also help
create a better understanding of the case studies and the paths the real estate
entrepreneurs took to establish their firms.
For the development of the case studies, 12 entrepreneurial leaders in the real estate
industry were interviewed based on a framework of questions. From this information, a
case study is created to obtain an understanding of their family background, education,
experience, path and characteristics. Each case study will be accompanied by an analysis
section discussing the important steps and characteristics that led to the development of
the entrepreneur's career. These individuals represent a variety of fields in the real estate
industry including development, construction, service, and finance.
In review of the case studies and analyses, 5 distinct paths are found which have led to
the preparation of being able to establish a real estate firm. Also, it is shown that no set
group of characteristics is utilized by each real estate entrepreneur. Yet, each
entrepreneur provides premier examples of these characteristics and gives insight to their
application in the real estate industry.
Real Options: A Way To Deal With Market Uncertainty In Real Estate Development Projects
Kyungwon Kim
Advisor: David Geltner, Professor of Real Estate Finance
The practice of applying options theory to real estate investments has only
recently begun. In particular, options in real estate are called “real options.” Real
options add value to real estate development projects by allowing developers to take
advantage of positive aspects of the market and avoid negative conditions.
There has not been much effort to rigorously quantify the value of applying
flexibility to real-world development projects. In this paper, I will attempt to examine the
impact of applying real options theory to a mixed-use development project, the “Parc1
project,” which consists of two office towers, a hotel, and a retail mall to gain better
understanding of flexibility. This project is being constructed all at once based on predetermined
assumptions about factors like rental rolls, sales price, and constructions costs.
However, the deterministic model could result in a loss in case market conditions do not
meet the assumptions set at the beginning. In this sense, applying real options such as
phasing, deferring, and abandoning would be one of the ways to absorb the uncertainties
in the market. This paper will try to figure out how much value real options can add to
the project in terms of dealing with market conditions. For the analysis, the quantitative
methods such as an engineering model and Monte Carlo simulation will be used.
Retail Sales Forecast: A Cross Sectional Approach for Retail Investment Strategy
Ai Kong
Advisor: William Wheaton, Professor of Economics
The intent of this thesis is to identify the demand drivers for ten retail sub-categories in the US
and develop an understanding of how to best use this information to make better retail real estate
investment decisions. This cross sectional study analyzes sales per population, establishment per
population, and sales per establishment based on six independent variables and the 2002 data set
of 54 metropolitan statistical areas. The independent variables are population, employment per
population, income per population, precipitation, temperature, and population growth.
The first portion of this thesis is to analyze the demand drivers for each retail category and the
degree of effectiveness of each variable on retail sales performance. The regression results of
this study have clearly demonstrated a measurable demand for each retail category given the
nature of each product type.
The last aspect of this thesis is the development of an investment strategy that examines the
predicted results versus the actual sales figures to see if a certain city is over saturated or undersupplied
with retail establishments by category. By understanding what is the exact demand
driver for each category, real estate investors are able to use this information efficiently to make
informed investment decisions based on demand drivers as well as retail store supplies. This
methodology provides a reasonable and well thought-out strategy to avoid unsuccessful
investment outcomes.
Structuring Public REIT-sponsored Private Capital Fund: The Case of US Industrial and Retail REITs
Cervantes Lee
Advisor: Lynn Fisher, Associate Professor of Real Estate
The private capital business for public REITs was started by Kimco Realty, Developer Diversified, AMB and
ProLogis during the years 1998-2000, at the time when the public equity was not easily available. Over the
past decade, public REITs have used their private capital funds to take out REITs’ existing portfolios and
newly completed projects, to finance land purchases and development pipelines, and to diversify their rental
income into a fee income business.
Given the limited disclosure of public REITs in their private capital funds and a lack of standardized industry
terms and practice applicable to this field, this research can be described a fact-finding study. By studying
each of the private capital funds managed by 7 leading REIT managers, I categorize these funds in terms of
fund type, inception year, fund life, fund style strategy, investment target, geographical focus, fund terms,
target leverage, key investors, parent REIT’s ownership, gross fund assets, distribution frequent and incentive
design.
In addition, I argue that the private capital business of public REITs would not have grown successfully
without fuel of the merchant development activities under the public REIT’s framework. This is particularly
true with respect to the industrial REIT sector. I carefully examine the case of ProLogis’ business model,
comprised of three indispensible pillars - merchant building, fund management and core portfolio, to
substantiate this claim.
By creating a new structure diagram of “public REIT-sponsored private capital fund”, I demonstrate the
“co-opetition” phenomenon among pension funds, real estate investment managers (“REIMs”) and public
REIT private capital funds in the value chain of the institutional real estate investment. The concept can be
described by the fact that two primary investors (pension funds and REIMs) of this field could themselves
replicate what public REIT private capital funds are doing. I also relate this observation to the real estate
M&A deals that occurred in 2007, where REIMs were observed to “arbitrage” between public REIT and
private real estate markets by taking the public REITs private.
Moving forward, public REIT-sponsored private capital fund is well positioned to grow as it complements
a niche market for pension funds and REIMs to add private real estate exposure in a predictable and
sizeable format. However, concerns on above 75% FFO coming from merchant development and
private capital for leading REITs (such as ProLogis) may trigger regulatory scrutiny from Internal Revenue
Service, as this represents a huge deviation from original purpose of being a REIT – to act as passive
investor for core portfolio holding and pay out as dividends most of its net income.
In an extreme scenario, REITs like ProLogis may voluntarily or involuntarily spin off their private capital
business. Under current capital market conditions, this might actually unlock public REITs’ shareholder
value. Referencing from mid-cap asset managers’ comparable (such as Eaton Vance and Janus Capital),
REITs’ private capital business can be valued from the 4x price-earnings multiple to a likely 20-30x range.
New Songdo City and the Value of Flexibility: A Case Study of Implementation and Analysis of a Mega-Scale Project
Junho Lee and Jeehyun Oh
Advisor: David Geltner, Professor of Real Estate Finance, Department of Urban Studies and Planning
In the modern real estate industry, mega-scale developments have been a notable feature.
The distinctiveness of these projects is that they are enormous in scale and thus require
many years to develop. Unlike regular sized projects, they have greater opportunities to
alter strategies, plans or designs during the multiple years of development. This provides
the developer with alternative options to mitigate potential risks or seize upside
opportunities. The “Real options” theory is especially applicable for valuation and decisionmaking
of mega-scale real estate development projects. Relying on the dynamic decisions of
the developer, for example, the project can proceed, be delayed or be abandoned. Either way,
the developer can avoid downside risks and attain a more optimal value for the project.
The New Songdo City (NSC) project in South Korea is an archetype of the mega-scale
development phenomenon. “New Songdo City” is a massive city development project on
1,415 acres of reclaimed land in Incheon, near Seoul. The project features innovative and
valuable aspects that are milestones for the real estate industry. Not only is NSC of megascale
and multi-phase, but it is highly international in nature (foreign lead developer and
architect, much foreign capital, and aimed at international world-class occupants). It also
features imaginative conceptual planning, local and international developer partnership
and sophisticated investment and financing techniques. The project highlights the
importance of the interaction of local circumstances and other participants, helping to avoid
risks and enhance the future values of the project.
New Songdo City thus provides an excellent laboratory to explore both the broader strategic
and historical development of a Mega-Project and also the applicability of modern, cuttingedge
analytical tools for valuing flexibility in project design and implementation. This
thesis seeks to explore both of these aspects, including an in-depth review of the history and
strategic prospects for the project as well as a specific quantitative model focusing on the
value of phasing in the project. The quantitative model is innovative in that, while previous
literature has developed classical economics-based real options models of NSC, this is the
first application of the “engineering-based approach” advocated by Professor de Neufville
and the MIT Engineering Systems Division. This approach allows the model to be more
transparent and user-friendly to decision-makers, assisting the valuation of flexibility in
the project in a manner more supportive for practitioners.
SECOND HOME REAL ESTATE MARKET: ECONOMIC ANALYSIS OF RESIDENTIAL PRICING BEHAVIOR NEAR HEAVENLY SKI RESORT, CA
Sean Lee
Advisor: William C. Wheaton, Professor of Economics
This paper examines a second home market near Heavenly Ski Resort in South Lake Tahoe, CA
to understand historical pricing behaviors and to forecast future prices using an econometric
model derived from economic, demographic, and climate data.
In order to do this study, we gathered historical residential sales data from 1988 to 2008 for the
study area, which is limited to residential houses located within a one-mile radius of the resort.
Moreover, other external variables, such as Tahoe skier visits, natural snowfall, San Francisco
Bay Area income and employment, and mortgage interest rates, were collected for the same time
period to determine how these variables influenced the prices. First, using approximately 550
residential sales data, a price index was created and subsequently historical residential home
pricing behaviors were analyzed. Typically, evaluation of house prices is difficult since each
residential property is a composite of goods that contain varying amounts of attributes. Therefore,
the hedonic house price model was applied to recognize and remove effects of the housingspecific
attributes on pricing. As a result, the real price index tracks only real prices as a function
of time. Over the 20 years of study period, two distinct trends were observed. The real prices
remained flat for the first 10 years and increased substantially in the second 10 years. Overall,
the real price index linearly trended upwards. Employing the real price index and the external
variables, a series of equations was developed as the foundation of an econometric model. The econometric model utilizes the following equation: New Permits (a measure of supply) and
Tahoe Skier Visits (a measure of demand), to forecast future supply and demand. The future
projections with relevant economic variables then were put into Stock and Real Price (a measure
of residential prices) equations to establish future prices. Using the econometric model, we
employed three scenarios portraying future economic conditions to examine the pricing
behaviors: realistic, optimistic, and pessimistic. In reaction to moderate snowfall and economic
growth in the realistic scenario, the real prices slope downward immediately and then upward.
With a higher economic growth and a phenomenal snowfall, the optimistic scenario predicts the
highest price appreciation through increase in demand. The pessimistic scenario is the only one
in which the significant price decline is predicted.
This study concludes that residential home prices will continue to increase in all cases except for
the pessimistic scenario, in which there are poor economic conditions and a light snowfall.
Another conclusion is that the existing housing stock is confined and outdated due to the
maturity of this market as well as new development restrictions imposed by the local authority.
REAL ESTATE PRIVATE EQUITY: MARKET IMPACTS ON INVESTMENT STRATEGIES AND
COMPOSITIONS OF OPPORTUNITY FUNDS
1987 - 2005
Alex Lin
Advisor: Lynn Fisher, Associate Professor of Real Estate
Market forces continually change the landscape of the real estate private equity (“REPE”)
industry. In the current market, robust capital raising and the emergence of new funds in
REPE suggest increasing competition to place capital while the credit crisis has marked the
end of an era for cheap debt that was previously used by opportunity funds to enhance returns.
Under these changing market conditions, opportunity funds seek to continually deliver above
market returns through various investment strategies and composition allocations which have
major implications on the risk levels of the funds. This thesis seeks to understand if and how
recent market changes have influenced the REPE industry. It identifies the kinds of
investment strategies currently being used by opportunistic funds, and in particular, whether
the investment compositions of the opportunity fund portfolios are changing in terms of
geographic allocation or asset type allocation.
The study finds that opportunity funds have been notably impacted by forces of the credit
crisis, but not necessarily by increasing competition. While it is not readily apparent whether
investment compositions of opportunity funds have changed due to the credit crisis, several
global funds are increasing geographic allocations to emerging markets, such as Asia, to
enhance returns. The interviewees generally believe that they will continue to deliver the
proposed returns without necessarily increasing portfolio risks due to their flexible investment
mandate, which allows them to invest in opportunities that are inline with their expertise and
experience. In the short term, most funds expect opportunities to arise from distressed sellers.
This thesis attempts to shed light on some issues involving REPE investing and represents a
first attempt to scratch the surface of opportunistic investment portfolio compositions and
strategies. Hopefully, readers will gain insight into the workings of this growing and highly
proprietary asset class.
Examining Price Appreciation in Foreclosed Properties
Eric Loth Jr.
Advisor: Dr. Henry Pollakowski, Principal Research Associate, Center For Real Estate
This thesis examines foreclosure sales of single-family homes in eight communities in the Boston Metro area and the price appreciation from purchase of a foreclosed property through to a subsequent fair market, arms-length sale. The post foreclosure sale price appreciation of the foreclosed properties is compared with price appreciation of fair market, arms length sales to discern the effects of a foreclosure on future price appreciation.
Is China Ready For REITs? -- An examination of challenges and opportunities
Tianjin Luo
Advisor: Brian A. Ciochetti, Professor of the Practice of Real Estate
With the current absence of a REIT-styled vehicle in China, this thesis examines the potential
opportunities and obstacles pertaining to the future introduction of REITs in China. The thesis
provides a comparative analysis on major REIT regimes around the world, in terms of formation,
structuring and operation guidelines, to identify their level of similarity and variance. The thesis
then shifts its focus to China, examining the development background of China’s real estate
sector and analyzing China’s market fundamentals and regulatory environment. Lastly, the thesis
provides a closer look at the REIT sector in Singapore and Hong Kong and discusses their
operational experience of the assets in China.
The thesis finds that REITs are regulated differently among countries. However, a number of
core criteria must be maintained to ensure the success of REITs in China. Commercial real
estate, although accounts for a small share of the real estate market currently, has grown rapidly
in recent years and is at the beginning of a boom as China continues to grow and mature as a
market economy. On the capital side, the Chinese real estate companies are heavily dependant on
bank loans to finance their development projects and there is a strong need for alternative and
diversified financing vehicles for future growth. However, China also proves to be a complex
market with a unique state-owned land system, with many social issues to confront as a
developing country and with a constantly changing and evolving regulatory framework. All of
these pose numerous challenges to the adoption of REITs in China.
It is clear that a REIT-styled investment vehicle fits the current and future needs of the Chinese
real estate sector. Although China is not yet ready to adopt REITs by international standards,
China must pursue the experiment of such practice amid of the challenges. China’s growth path
in the past thirty years with its remarkable economic reform has just proved this point.
Bringing Good Things to Life: New Markets Tax Credits and the Opening of Low-income Communities to Investment, Including a Case Study of Pittsfield, Massachusetts
Daniel J. McGrath
Advisor: Lynn Fisher, Associate Professor of Real Estate
The New Markets Tax Credit (NMTC) Program is designed to promote investment and economic growth in urban and rural low-income communities across the country. Created in 2000 as one of the last acts of the Clinton Administration, the NMTC program has allocated $16 billion of tax credits to date to Community Development Entities (CDEs), who in turn use the credits to make investments in target communities. Through the final authorized round of allocations, which is currently projected to be end-of-year 2008, the program will have allocated $19.5 billion in tax credit authority.
This thesis investigates how NMTCs work, why they are structured as they are, and who uses them. It reviews the origins as well as the current status of the program, and investigates how one of the most active, innovative CDEs in the country, Massachusetts Housing Investment Corporation (MHIC), uses NMTCs in practice. Finally, this thesis provides a case study of Pittsfield, a small city in western Massachusetts where NMTCs have been used as part of the community’s efforts to redevelop the downtown as a cultural and entertainment destination. Pittsfield, once home to a large General Electric manufacturing plant, experienced a rapid economic decline following GE’s gradual closure and sale of its operations in the city over the last several decades. This thesis investigates Pittsfield’s efforts to redefine itself through a combination of strong leadership, vision, and the effective use of available capital resources such as NMTCs.
One of the primary questions raised about NMTCs has involved how to evaluate the impacts of the tax credit investments on their target communities. Especially in an environment in which the re-authorization of the program is not assured, understanding the impacts of NMTC investments is critical if the program is to continue. This project lays out an innovative evaluation framework based upon ‘theory of change’ logic modeling in order to offer a potential guide for NMTC impact evaluation that could be used in practice. In particular, this thesis argues that NMTC investments must be evaluated within the context of broader community redevelopment initiatives and not as stand-alone initiatives. Ultimately, the value of theory of change models both for planning community development initiatives and for evaluating NMTC impacts is demonstrated by constructing such a framework for Pittsfield, Mass.
Office Leases & Landlord Investment in Energy Efficiency
Brian S. Meyer, Jr.
Advisor: Lynn M. Fisher, Associate Professor of Real Estate
What is the relationship between the structure of leases in the Boston office rental market and how
much landlords invest in energy efficient building systems for their existing buildings? I am drawn to
this question because it seems to me that there is technology available that would allow the operation
of for-rent office buildings to be more efficient in their consumption of energy than they currently are. I
investigate this question with the hope that by characterizing the problem, we can start to solve it. To
this end, I interview 35 players in the real estate market in Boston in order to determine the relationship
between leases and landlord investment in energy efficiency, and if there is any way to increase such
investment.
The most significant finding of this study is that the lease does not determine the way the market works,
rather the market determines the way the leases are written. The result at this time for the Boston
market is that leases simply do not incentivize the landlords to make investments in energy efficiency
because the tenants do not want to pay for the landlords to do it. The landlords are unable to make
significant profit from these upgrades due to existing recapture clauses and operating expense
allocation in existing leases, and the payback period on many of these investments does not satisfy the
investment horizon of many commercial landlords. They lack pressure and motivation from their
tenants, as evidenced by the tenants’ refusal to pay higher rents for more efficient buildings. Finally,
there is no perception of a premium, in the form of a lower cap rate, paid by the capital markets at the
time of sale.
This is a very complex issue, with no single, clear resolution. There have been many suggestions as to
how this problem may be solved, ranging from a complete change in lease structure, to government
intervention through efficiency mandates or taxes, to a laissez faire stance that will allow the market to
take care of the problem. I think that none of these in isolation will solve the problem, but that a
combination of them all may ameliorate many of the issues. Perhaps the best combination would be to
mandate performance or to tax excessive consumption while at the same time developing leases that
better address how to share costs and benefits. By doing this, we will set appropriate minimum goals,
and provide suitable tools to achieve them. Without both of those pieces, it seems unlikely that much
progress will be made.
Stimulating Nigeria’s Emerging Real Estate Markets: Investment Opportunities Through the Public Sector
Oladimeji Odusote
Advisor: Brian Anthony Ciochetti, Professor of the Practice of Real Estate
In its Global Economics Paper No.134, the Goldman Sachs Economics Group highlights
the West African country of Nigeria as having the potential to be among the next
generation of emerging markets around the world – the next eleven (N-11) - after their
much publicized BRIC countries: Brazil, Russia, India and China. Nigeria - the only
country included from Sub-Saharan Africa - is shown to have the potential to become one
of the top 20 economies of the world by 2025: owing to such indicators as recent GDP
growth - and projections for continued growth - and its substantial population.
As is typical with emerging markets, rapid growth in Nigeria’s economy translates into
an equally rapid growth in the demand for institutional quality real estate and the first
signs of this can already be observed in the country’s major markets of Lagos, Port-
Harcourt and Abuja. This growing demand has however been met with very limited
supply, resulting in high and growing rents in these markets and an opportunity for
profitable real estate investment, where they can be found.
This paper examines the role of the public sector as one such source of real estate
investment opportunity: The public sector having hitherto played a very active role in the
country’s real estate development. An analysis will be made of the historical
development of public sector influence on real estate; and then an evaluation made, on
the opportunities being created, as this influence is directed towards encouraging private
sector investment and expertise.
Strategic Framework for Real Estate Investment in an Emerging Market: The Case of Commercial Real Estate in Bogotá, Colombia.
José Camilo Otálora Castro
Advisor: Gloria Schuck, Lecturer
Real estate investment is becoming increasingly international. Deregulation and integration of global capital markets, growth of emerging market economies, demographic trends in developed economies, and geopolitical and sociocultural changes the world over are presenting opportunities for international real estate investors in a fascinating, complex and interconnected market place.
Latin America seems to be one of the last frontiers still unexplored by international real estate investors. Colombia in particular is making quiet and steady efforts to internationalize its economy and welcome Foreign Direct Investment (FDI). Among the policy-makers´ long-term goals, Colombia aspires to become one of the three most competitive countries in Latin America by the year 2032.
International real estate investors need to adapt their tools and techniques to underwrite new and uncharted markets that present investment opportunities.
This thesis proposes a comprehensive strategic framework for international real estate investments, by adapting from selected business academic literature and real estate industry practice different decision-making approaches.
The purpose of the thesis is twofold. First, by proposing a strategic framework, the work intends to contribute to the development of strategic decision-making literature in international real estate investment.
Second, by utilizing the strategic framework to study selected issues and variables that are deemed relevant or pertinent to the commercial real estate market in Bogotá, it attempts to serve as a resource to international real estate investors interested in the market.
A Comparison of Downtown and Suburban Office Markets
Nikhil A. Patel
Advisor: William Wheaton, Professor of Economics
There have been many studies about office demand with relation to
employment focused at the MSA level. This paper investigates the
relationship between office demand and office employment between
downtown and suburban markets. The paper provides an analysis of
office demand and employment across 43 downtown markets and 52
suburban markets for the years 1998 and 2006. Correlation and multivariable
regression analysis are used to determine the relationship
between office demand, employment, and rent as well as the
relationship between downtown and suburban markets.
The analysis is divided into three parts. The first part focuses on
levels of office employment against levels of office demand in each
market for each year separately. The second section investigates the
change in office demand against the change in employment and rents for
each market over the two years. Finally, the third part analyzes the
relationship of office demand, employment and rent between downtown
and suburban markets.
The paper uses employment data categorized by industry using the North
American Industry Classification System (NAICS). Employee counts are
estimated from the establishment data available by zip code from the
U.S. Census Bureau. By using employment data at the zip code level,
the study is able to split the MSA into downtown and suburban markets.
The study focuses on six industries thought to use the majority of
office space.
Real Options in Action: Vertical Phasing in Commercial Real Estate Development
Jason R. Pearson and Kate S. Wittels
Advisor: Richard de Neufville, Professor of Civil and Environmental Engineering and Engineering Systems
Real estate development is inherently a risky endeavor. Developers encounter varied risks
during the different phases of a development project, from permitting to construction and
through lease-up and stabilized operations. Flexibility allows a developer to mitigate some of
these risks by capitalizing on potential upsides, and reducing the effects from possible
downsides. Flexibility, and phasing specifically, enables a developer to manage risk more
effectively by allowing a building to grow as market conditions warrant. This thesis investigates
the determinants and implementation of vertical phasing, and suggests areas of applicability for
vertically phased development. By “vertical phasing”, we mean when a building is originally
constructed to a certain height, but includes the intentional capacity for it to expand vertically in
the future. Vertical phasing is an example of a real option “in” real estate development. A real
option embodies a right, but not an obligation to pursue a future course of action. Flexibility, or
real options, in real estate is important because it can add value to a project.
The significant expansion of tall buildings is a recent phenomenon, though vertical phasing itself
is not new. Expanding a one story building to two stories, for example, is a common example of
vertical phasing. This thesis examines the decision and development process of major buildings
that are constructed with the intentional ability to be expanded vertically in the future without
disrupting the occupation and operations of the original building. While the intention is that the
vertical expansion will take place at some appropriate time in the future, if such an opportunity
never arises, the original building can exist by itself as a complete, fully functioning structure.
Drawing from a study of four buildings in the United States and Canada, this thesis examines the
context in which vertical phasing of buildings is employed. It first considers the various drivers
that lead to vertical phasing. It then discusses the specific issues and challenges with respect to
vertical phasing. This thesis argues that while vertical phasing of buildings is rare and complex,
it is a viable method of development that has significant potential in enhancing the value of
buildings. Specifically, vertical phasing is relevant to corporate real estate development, in
which less quantifiable value drivers of a building are tangible and important. By evaluating the
drivers and implementation of vertical phasing, this thesis shows that vertical phasing of
buildings may be easier than commonly believed, and may be used effectively in corporate real
estate development and possibly other sectors of the real estate industry.
York’s Wild Kingdom: A Development Proposal
Kimberley Whiting Rae
Advisor: Dennis Frenchman, Leventhal Professor of Urban Design and Planning
York’s Wild Kingdom is a privately held zoo and amusement park in York, Maine. Berkshire Development, a Massachusetts based shopping center developer and investment company currently controls the Wild Kingdom and the 150 acres that surround it. The community is culturally divided between York Harbor and York Beach, which is relevant to the entitlement process. The site is uniquely positioned to provide a new public road to York Beach directly from the highway, thus alleviating a longstanding traffic congestion problem for York Harbor. This may be a point on which both groups can unite, to the benefit of the developer. This thesis examines the potential of the site in a concept level development plan. To do this, I used four assessment criteria for each programming option. 1. Enhancement of community identity. 2. Balance seasonal resort uses with year round uses. 3. Broad community support. 4. Economic feasibility to the developer. Uses explored are a retail center with a ‘New England Village Green’ theme, an expansion of the zoo, the addition of a non-seasonal indoor waterpark, the addition of a spa which draws on the nineteenth century theme of ‘coming for the cure’, and an extension of the existing downtown retail area into the site. I argue that in order to initiate this development, the above concerns must be addressed.
Stadium Development and Urban Renewal: A Look at Washington, DC
James W. Rizzo
Advisor: John F. Kennedy, Lecturer
This thesis investigates the factors, related to urban stadium development, that act as a
catalyst for subsequent local urban renewal. Over the recent decades there has been
substantial debate related to stadium or arena development. “The stadium debate
intersects with cultural studies, economics, law, urban studies, civic planning, sports
administration, mass communications, and sociology.”1 The center of this debate is over
the economic and social “net benefit” to a city that undertakes a stadium development.
Many argue that the economic and social costs created by urban stadium development
outweigh the public good, especially in the case of publicly funded or subsidized
stadiums. This thesis concentrates on the renewal of the surrounding real estate markets
rather than broader economic renewal. When this thesis refers to “urban renewal” it is
meant in the context of the renewal of the physical infrastructure and real property.
The thesis examines the range of costs and benefits resulting from stadium induced urban
real estate renewal. The benefits analyzed are derived from the changes in the local real
estate markets that may be connected to the arena or stadium construction. The subject
case study illustrates some of the broader economic benefits related to urban real estate
renewal.
Washington, DC provides a recent example of urban arena development that led to
significant local investment in the development of the surrounding area. Construction of
the Verizon Center led to development of residential, office, and retail product in the
immediate area. The case study explores the factors (specific to the site, team owners,
local developers, and city officials) that create a fertile environment for urban real estate
renewal. It also ascertains, by way of interviews and public record, the concerns of these
parties while making the critical decisions that can spark this type of urban rebirth. Using
the Verizon Center case study, this thesis examines the factors that had a positive impact
on urban renewal.
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Price Discovery in Commercial Mortgage Backed Securities: What Factors Determine Pricing at Origination and After Origination in the CMBS Market?
Emily Schwartz and Matthew Warner
Advisor: William C. Wheaton, Professor of Economics
The commercial mortgage-backed securities (CMBS) market has vastly evolved over the last
decade, but it remains a very private and proprietary market in comparison to other bond markets
such as corporate or municipal bonds. The formation of CMBS data source providers such as
Trepp and Intex in recent years has added transparency to the market, but large gaps still remain
in available information for CMBS investors, particularly in the secondary trading market. This thesis examines pricing of CMBS at origination, when it is sold by the issuer, and after
origination, when it is traded in the secondary market. Using a sample of AAA rated CMBS this
thesis seeks to determine which factors influence price at origination and after.
This thesis is essentially split into two separate studies, one examining pricing at origination and
the other pricing after origination. For both parts, regression analyses were performed on fifty
AAA rated securities issued from June of 2001 to December of 2006. All deal level information
was provided by Trepp, while JP Morgan Chase provided historical AAA rated CMBS market
information as a comparison. Secondary pricing data, based on a proprietary pricing model was
also provided by Trepp. A small sample of data from actual closed transactions in the secondary
market was supplied by Morgan Stanley for comparison.
The results of the first part of this thesis are very similar to previous works done on the topic and
show that Debt Service Coverage Ratios, geographic concentration, and property type are all
important factors in determining the initial price of a CMBS issuance. The results of the price at
origination study show that investors preferred seasoned CMBS deals over new issues even
though the fact that overall market spreads decreased during the studies time frame. This
preference suggests that investors were more attracted to seasoned CMBS than they were to
newer issuances. The second part of this thesis illustrated a similar inclination by investors to
more seasoned CMBS in the secondary trading market. The authors conclude that variations do
exist in the pricing of CMBS in the secondary trading market and that overall the market has
significant enough transparency to incorporate different factors into investment decisions.
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Knowledge-based Cluster Development in India Opportunities and Challenges
Chandan Dev Singla
Advisor: Brian A. Ciochetti, Professor of the Practice of Real Estate
Knowledge-based industries tend to cluster. The nature of activities illustrate the importance of networks
and virtual and proximity aspects of clustering. Review of existing literature brings out the advantages of
clustering for such industries.
The purpose of the study is to comprehend the current status of development, both economic and real
estate, in the knowledge-based industries in India. A stylized model is used as a reference to understand
the status of economic development. Current body of literature and interview results from this study
suggests transitioning nature of India’s knowledge-based industry from being a services provider to
becoming a knowledge provider. However, there are challenges in the transition process related to
infrastructure and human resource.
This study suggests that a large scale mixed use project may in fact be able to address some of the
ongoing issues in the economic domain. The proposed development may lead to clustering of business
and universities thus, giving rise to a knowledge-based cluster in India.
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Greening Stadiums: Study of Environmentally Responsible Methods of Building and Retro-fitting Stadiums
Peter L. Vanderweil
Advisor: John F. Kennedy, Lecturer
Sustainable development for stadiums and arenas is a recent topic gaining interest throughout
professional sports ownership groups worldwide. Stadiums have lagged behind in understanding
the best practices surrounding the analysis and implementation of green building techniques due
to their unique nature, while other more conventional building types have developed and
implemented a standard system of practices with regards to sustainable design. Abnormal usage
patterns, variable climate conditions, and slow changing operational structures with longstanding
policies are all hurdles facing organizations as they attempt to make their stadiums greener. This
thesis investigates and lists current examples of green friendly design and operations that exist in
stadiums worldwide. It then considers an analysis of the LEED certification process, supply
chain management, transportation infrastructure, recycling programs, and innovative design
measures. The thesis also investigates the organizational and technical hurdles that many teams
face in implementing these green features despite apparent widespread demand to adopt them.
Many facets of greening stadiums have been implemented throughout the world, mostly using
the existing framework that has been designed towards conventional buildings during recent
years. Teams that have had the greatest success have shown a willingness to learn and
understand the greening options available to them. This includes how these options fit into the
physical confines of the stadium, its surrounding environment, and the overall business and
social objectives of the organization. Successful adopters also strive to adapt their existing
organizational and operational framework to position themselves to benefit from new techniques
that could further enhance their stadium’s overall green characteristics.
Greening the current and future stadiums of the world is a continuous process. Teams that begin
to implement sustainable practices generally find the process infectious, where more ideas and
programs are soon born from previous initiatives. Organizational and technical leadership are
keys to driving innovation and change.
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A Simplified Constant-Liquidity Price Index for U.S. Commercial Property Based on the
RCA Database
Yali Wang
Advisor: David M. Geltner, Professor of Real Estate Finance
This thesis builds on the endogenous relationship between transaction price and volume
in commercial real estate markets in order to construct a simple “constant-liquidity price index”
(SCLI) applicable to general transaction databases such as that of Real Capital Analytics Inc (a
MIT/CRE member firm). By recognizing the fact that current commercial property indices do
not capture the demand-side of the market (potential property buyers), which is the source of
liquidity in the market, the type of index developed in this thesis fills a gap in the need for
commercial property investment information.
The ease of selling a property at the price indicated by an index of average realized prices
(in closed deals) is variable and highly correlated with market cycles. And investors care not
only for the price but also want to know how easy it is to sell property at those prices. This thesis
is an extension of the formal study of constant-liquidity indexing (Transaction based supply and
demand index) developed by Fisher, Gatzlaff, Geltner and Haurin (2003) based on the NCREIF
(National Council of Real Estate Investment Fiduciaries) Property Index (NPI) transaction data
base (hereafter referred to as “FGGH”). Compared with the underlying more rigorous
econometric model of FGGH, this thesis presents a simplified approach to construct a constant
liquidity price index (hereafter referred to as “Simplified Constant-Liquidity Price Index/ SCLI”)
suitable for a more typical type of commercial property transaction database, one that contains
data only on sold properties (the NCREIF database used by FGGH contains data on both sold
and unsold properties).
In this thesis, monthly SCLIs are compared with the corresponding realized price indices
and the results suggest that the SCLIs tend to lead the price indices and display a greater
volatility. The SCLI developed here behaves similarly to the more econometrically rigorous
FGGH-based demand-side indexes, therefore tends to validate the construction method of the
SCLI, suggesting that this could be a useful information product and possibly a valuable tool for
investment allocation and derivatives trading.
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Emerald Cities: The Emergence of Mega Developments in the 21st Century
Steven P. Weikal
Advisor: Dennis Frenchman, Leventhal Professor of Urban Design and Planning, Director, City Design and Development, MIT Department of Urban Studies and Planning
This thesis examines the recent worldwide boom in megacity development. Its basis is a global survey of megacity building that quantifies the amount of current development and qualifies the various city types and themes, the countries in which megacities are being built, and the firms that are building them. The key findings from the survey are summarized and analyzed, followed by a closer look at some of the leading city building firms and their role in the global megacity building industry. Next, is an investigation of the critical reasons why city building is occurring on such a massive scale, which together with the survey findings sets the framework for three possible distinct megacity market models. The thesis continues with case studies of three new cities, each with their own unique theme and reasons for being developed. Finally, the megacity phenomenon is assessed from the perspective of broader issues such as sustainability and social impact, and summary conclusions are drawn.
